GENERAL PROVISIONS

SECTION 1. This Decree shall be known as The Insurance Code.

Insurance contracts are primarily governed by the Insurance Code but if it does not

specifically provide for a particular matter in question, the provisions of the Civil Code on
contracts and other special laws shall govern.
The Civil Code is applied SUBSIDIARILY

- The construction of the Insurance Code means its interpretation and this is allowed only if
its provisions are not clear.

SUBROGATION: the substitution of one person in place of another with reference to a

lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies and securities.
The doctrine of subrogation is basically a process of LEGAL SUBSTITUTION
The right of subrogation under 2207 applies ONLY to property, and not to life insurance
Payment by the insurer to the insured operates as an EQUITABLE ASSIGNMENT to the
former of all remedies which the latter may have against the 3rd party
The presentation in evidence of the insurance policy is NOT INDISPENSABLE before the
insurer may recover; the SUBROGATION RECEIPT, by itself, is sufficient
The cause of the loss or injury must be a risk covered by the policy to entitle the insurer
to subrogation
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury. (UNDER-INSURANCE)
If the insurer pays the insured for a loss which is NOT a risk covered by the policy, the
VOLUNTARY PAYMENT will not vest the insurer the right of subrogation

SEC. 2. Whenever used in this Code, the following terms shall have the respective
meanings hereinafter set forth or indicated, unless the context otherwise requires:
(a) A contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.
A contract of suretyship shall be deemed to be an insurance contract, within the
meaning of this Code, only if made by a surety who or which, as such, is doing an
insurance business as hereinafter provided.
(b) The term doing an insurance business or transacting an insurance business,
within the meaning of this Code, shall include:
(1) Making or proposing to make, as insurer, any insurance contract;
(2) Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity
of the surety;
(3) Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning
of this Code;
(4) Doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived
from the making of insurance contracts, agreements or transactions or that no
separate or direct consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.
(c) As used in this Code, the term Commissioner means the Insurance
Commissioner.

INSURANCE: an agreement by which the insurer, for a premium paid by the insured,
promises to pay money or its equivalent or to do some act valuable to the latter, upon the
happening of a loss, damage, liability, or disability arising from an unknown or contingent
event.
POLICY: a written insurance contract
ASSURANCE: an event which must happen
INSURANCE: a contingent event which may or may not happen

 3 Main Classifications of Kinds of Insurance

ELEMENTS of a contract of insurance
1. Subject Matter: refers to the thing insured
2. Consideration: the premium paid by the insured
3. Object and Purpose: the transfer and distribution of risk of loss arising from a
contingent event
1.
2.
3.
4.

The insured possesses an insurable interest susceptible of pecuniary estimation

The insured is subject to a risk of loss y the happening of designated perils
The insurer assumes that risk of loss
Such assumption of risk as part of a general scheme to distribute actual losses among a
large group bearing a similar risk
5. As consideration, the insured makes a ratable contribution called premium to a general
insurance fund: the principle of RISK-DISTRIBUTION
All the elements must be present, otherwise there can be no contract of insurance
If only first 3 elements are present, it is RISK-SHIFTING DEVICE, i.e. Guaranty Contract

1. Loss or impairment of property interests: marine, fire, guaranty, credit, fidelity and title
2. Loss of earning power due to death: life, accidental injury, ill-health, sickness, old-age,
disability, unemployment
3. Contingent liability to make payment to another: reinsurance, workmens
compensation, motor vehicle liability

NO-FAULT INSURANCE: essentially the substitution of first-party insurance for tort liability
The victim of a tort, instead of looking for a tortfeasor and his insurer for reimbursement,
looks to his own insurer for first-party protection

ALL-RISK COVERAGE: all causes except those specifically excepted in the policy
All those not excluded are automatically included
It covers all kinds of loss but not those due to wilful and fraudulent act of the insured
The burden is ordinarily placed on the INSURER to prove that the loss falls within an
explicit exception on the coverage

SPECIFIED-RISK COVERAGE: covers damage only if it results from specifically identified

CHARACTERISTICS of a contract of insurance
1. Consensual: perfected by the meeting of the minds of the parties
2. Voluntary: not compulsory and the parties may incorporate such terms and conditions
as the may deem convenient
3. Aleatory: it depends upon some contingent event
4. Executed: as to the insured after the payment of premium
5. Executory: on the part of the insurer until payment for a loss
6. Unilateral: imposing legal duties only to the insurer who promises to indemnify in case
of loss
7. Conditional: subject to conditions the principal one of which is happening of the event
insured against
8. Contract of Indemnity: (except in life and accident insurance where the result is
death) the promise of the insurer is to make good only the loss of the insured
9. Personal: all insurance contracts share a common trait of personalness; the insurer
prices the coverage depending on the characteristics and traits of the particular
insured
An insurance contract is property, in legal contemplation. Unlike property policies,
LIFE INSURANCE POLICIES are generally assignable or transferable like any
chose in action.

DEDUCTIBLE: the insured bears the loss up to a certain amount

COINSURANCE: the insured bears some stated percentage of the loss regardless of
amount

causes listed in the policy

The burden is ordinarily placed on the INSURED to initially prove that the loss falls within
the policys provision on coverage
CONSTRUCTION OF INSURANCE CONTRACTS
- All provisions of the insurance policy should be examined and interpreted in consonance
with each other. The policy cannot be construed piece-meal.
- As a general rule, contracts of insurance are to be construed or interpreted liberally in favor
of the insured and strictly against the insurer resolving all ambiguities against the latter.
- It is a contract of adhesion, wherein most of the terms of the contract do not result from
mutual negotiation between the parties
- Where restrictive provisions are open to 2 interpretations, that which is most favorable to
the insured is adopted
- In determining the intent of the parties to the contract, the courts will consider the purpose
and object of the contract
The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity
The courts are to regard with extreme jealousy limitations of liability found in insurance
policies and to construe them in such a way as to preclude the insurer from noncompliance with his obligation
Descriptive words are to be construed with the greatest liberality

- The cardinal principle of insurance law of interpreting insurance contracts favorably to the

insured is applicable only in cases of doubt, not when the intention of the policy is clear or
the language is sufficiently clear to convey the meaning of the parties
The terms of an unambiguous insurance policy cannot be enlarged or diminished by
judicial construction
Where the contract is silent with regard to a particular matter, any doubt that may arise for
failure of the contract to provide with respect to a particular matter should be resolved
against the insurer.

WHAT CONSTITUTES AS INSURANCE BUSINESS?

Principal Object and Purpose Test: if the principal object and purpose is indemnity, the
contact constitutes insurance; but if it is service, risk-transfer being merely incidental, then
the arrangement is NOT insurance, and therefore not subject to laws regulating insurance
Philippine Health Care Provider v. CIR (2009)
- The basic distinction between medical service corporations and ordinary health and
accident insurers is that the former undertake to provide prepaid medical services through
participating physicians, thus relieving subscribers of any further financial burden, while
the latter only undertake to indemnify an insured for medical expenses up to, but not
beyond, the schedule of rates contained in the policy.
- Consequently, the mere presence of risk would be insufficient to override the primary
purpose of the business to provide medical services as needed, with payment made
directly to the provider of these services. In short, even if petitioner assumes the risk of
paying the cost of these services even if significantly more than what the member has
prepaid, it nevertheless cannot be considered as being engaged in the insurance business.
- By the same token, any indemnification resulting from the payment for services rendered
in case of emergency by non-participating health providers would still be incidental to
petitioners purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements,
petitioner is required to set up a system and the facilities for the delivery of such medical
services. This indubitably shows that indemnification is not its sole object.
- However, assuming that petitioners commitment to provide medical services to its
members can be construed as an acceptance of the risk that it will shell out more than the
prepaid fees, it still will not qualify as an insurance contract because petitioners objective is
to provide medical services at reduced cost, not to distribute risk like an insurer.
- The US Court recognized that HMOs provide both insurance and health care services and
that Congress has understood the insurance aspects of HMOs since the passage of the
HMO Act of 1973. This case is not applicable. First, this was not a tax case. Second, the
Court stated that Congress expressly understood and viewed HMOs as insurers. It is not
the same here in the Philippines. As will be discussed below, there is no showing that the
Philippine Congress had demonstrated an awareness of HMOs as insurers.

SEC. 3. Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him, may
be insured against, subject to the provisions of this chapter.
The consent of the spouse is not necessary for the validity of an insurance policy
taken out by a married person on his or her life or that of his or her children.
All rights, title and interest in the policy of insurance taken out by an original owner
on the life or health of the person insured shall automatically vest in the latter upon
the death of the original owner, unless otherwise provided for in the policy.
REQUISITES of a contract of insurance
1. A subject mater in which the insured has an insurable interest
2. Event or peril insured against which may be any contingent or unknown event, past or
future
3. A promise to pay or indemnify in a fixed or ascertainable amount
4. A consideration for the promise, known as a premium
5. A meeting of the minds of the parties upon all the foregoing essentials
The parties must be competent to enter into the contract: LEGAL CAPACITY to contract
A contract of insurance entered into by a minor is not entirely void, but merely
VOIDABLE; the insurer cannot escape liability by pleading minority of the insured

SEC. 4. The preceding section does not authorize an insurance for or against the
drawing of any lottery, or for or against any chance or ticket in a lottery drawing a
prize.
3 Essential Elements of Lottery
1. Consideration
2. Prizes
3. Chance

A contract of insurance is NOT a wagering contract

Possibility of Gain or Loss

Wagering Contract

Contract of Insurance

Contemplate gain through mere

chance

Seek to distribute possible loss by

reason of mischance

Avoidance of Misfortune

Courts fortune

Avoid misfortune

Essence of the Contract

Whatever one wins from a wager is

lost by other

Premiums paid are in a fund which

make possible payment of all claim

Creation of Risk or Loss

Creates a risk of loss to himself

Does not create a new and nonexistent fish

Similarity between insurance and gambling

In both cases, one party promises to pay a given sum to the other upon the occurrence of a
given future event, the promise being conditioned upon the payment of, or agreement to
pay, a stipulated amount by the other party to the contract.
In either case, one party may receive more, much more, than he paid or agreed to pay.

SEC. 5. All kinds of insurance are subject to the provisions of this chapter so far as
the provisions can apply.

By virtue of Section 5, Sections 1-100 are also applicable to MARINE Insurance, FIRE
Insurance, Suretyship, LIFE Insurance, and to any other kind of insurance so far as said
provisions can apply.

SEC. 6. Every corporation, partnership, or association, duly authorized to transact

insurance business as elsewhere provided in this Code, may be an insurer.

Under the Code, the business of insurance may be carried now ONLY by corporations,

The CONTROL TEST, the citizenship of the controlling stockholders in time of war will
be considered in determining citizenship of a private corporation

With respect to property insurance, an insurance policy CEASES to be valid and

enforceable as soon as the INSURED becomes a public enemy

With respect to life insurance, the US RULE declares that the contract is not merely

suspended but is ABROGATED by reason of nonpayment of premiums, since the time of

the payments is peculiarly of the essence of the contract
The termination of the war does NOT REVIVE the contract.
Consequently, the insurer is NOT liable even if the loss suffered by the insured occurs
after the war

SEC. 8. Unless the policy otherwise provides, where a mortgagor of property effects
insurance in his own name providing that the loss shall be payable to the mortgagee,
or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon
the interest of the mortgagor, who does not cease to be a party to the original
contract, and any act of his, prior to the loss, which would otherwise avoid the
insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be performed by
the mortgagor, may be performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.

partnerships and associations

BUT Sec. 190-192: an insurer may be an individual, the only requisite being that he holds

a certificate of authority from the Insurance Commissioner and possessed the capital
assets required of an insurance corporation doing the same kind of business in the PH
It has been stated that the State itself may go into insurance business

WHO MAY BE AN INSURER?

1. Foreign or Domestic Insurance Company of Corporation: it must first obtain a
CERTIFICATE OF AUTHORITY to transact insurance business in the Philippines from the
INSURANCE COMMISSIONER
2. Individual, Partnership, or Association

- The business of insurance is one that is affected with a PUBLIC INTEREST and therefore,
it is subject to regulation and control by the state by virtue of the exercise of its place power
or in the interest of public convenience and the general good of the people.

SEC. 7. Anyone except a public enemy may be insured.

PUBLIC ENEMY: designates a nation with whom the PH is at war and it includes every
citizen or subject of such nation

A mob (or MILF) are never considered public enemies for the purposes of Sec. 7

The mortgagor and the mortgagee each has a SEPARATE insurable interest in the property
mortgaged; therefore separate insurances may be obtained by them

- MORTGAGOR: up to the extent of the value of the property

- MORTGAGEE: up to the extent of the debt secured

The mortgagor cannot recover upon the insurance beyond the full amount of his loss and
the mortgagee, in excess of the credit at the time of the loss nor the value of the property
mortgaged.

LEGAL EFFECTS when mortgagor of property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or assigns a policy of insurance to the
mortgagee
1. The contract is deemed to be upon the interest of the mortgagor, hence he does not
cease to be a party to the contract
2. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance,
affects the mortgagee even if the property is in the hands of the mortgagee
3. Any act which under the contract of insurance is to be performed by the mortgagor may
be performed by the mortgagee with the same effect
4. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit
5. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished

RIGHT of mortgagee under mortgagors policy

BEFORE LOSS: the mortgagee is a conditional appointee of the mortgagor; such right
becomes absolute upon the occurrence of the loss
AFTER LOSS: if the loss happens when the credit is not due, the mortgagee is entitled to
receive the money to apply to the extinguishment of the debt as fast as it becomes due
- If the loss happens AFTER the credit has matured, the mortgagee may apply the
proceeds to the extent of his credit
EFFECTS when mortgagee himself procures the policy by which the mortgagor pays
the premiums
Upon destruction of the property, the mortgagee is entitled to receive payment from the
insured but such payment discharges the debt if equal to it
If greater than the debt, the mortgagee holds the excess as TRUSTEE for the mortgagor

SEC. 9. If an insurer assents to the transfer of an insurance from a mortgagor to a

mortgagee, and, at the time of his assent, imposes further obligations on the
assignee, making a new contract with him, the acts of the mortgagor cannot affect
the rights of said assignee.

SEC. 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or support,
or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or prevent
the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.
INSURABLE INTEREST: that interest which the law requires the owner of an insurance
policy to have in the person or thing insured

In the absence of such interest, the person insuring in effect would be gambling, which is
prohibited by law.

The insurable interest requirement is held NOT APPLICABLE to INDUSTRIAL LIFE

The assignee, unless he makes a new contract with the insurer, acquires no greater right
under the insurance than the assignor had, subject to insurers defenses.
FIRE POLICY: not subject to assignment, being strictly a personal contract
MARINE POLICY: not assignable without the consent of the insurer
- Other view is that is is assignable even without the consent of the insurer because it
was established at a time when means of communication between distant places were
slow and difficult. But with the establishment of modern means of communication, this
justification disappeared.
CASUALTY POLICY: not freely assignable due to presence of moral hazards
LIFE POLICY: the policy may be freely assigned BEFORE OR AFTER the loss occurs,
to any person whether he has an insurable interest or not
- If an assignment to a person without insurable interest is made in bad faith or for an
illegal purpose, will not be upheld: tantamount to a wager to life of the insured

A distinction must be made between the following assignment or transfer:

1. The policy itself which transfers the rights to the contract to another insured
2. The proceeds of the policy after a loss has happened
3. The subject matter of insurance, such as a house insured under a fire policy which has
the effect of suspending the insurance

insurance
2 General Classes of Life Policies
1. Insurance upon ones life: does not usually present an insurable interest question
- Every person has an unlimited insurable interest in his own life
- The selection of the beneficiary by the insured is in ordinary cases the sufficient guaranty
of the existence of such good faith and confidence between them as will sufficiently
protect the insured
Therefore, the insured may freely choose the beneficiary, even if such beneficiary has
no insurable interest upon the life of the insured.
- EVIDENCES OF WAGERING POLICY
A. The original proposal to take out insurance was that of the beneficiary
B. Premiums are paid by the beneficiary
C. The beneficiary has no interest, economic or emotional, in the continued life of the
insured
- On finding that such policy is primarily a wager, the court will generally void the policy
ENTIRELY
2. Insurance upon life of another: must have an insurable interest in the life of that person
- The presence of insurable interest is really required only as evidence of the good faith of
the parties

SIMILARITY between a life insurance policy and a civil donation

Both are founded upon the same consideration: LIBERALITY
From the premiums paid by the insured out of liberality, the beneficiary will receive the
proceeds of said insurance
- In effect, the proscription in Art. 739 should equally operate in life insurance contracts

SEC. 11. The insured shall have the right to change the beneficiary he designated in
the policy, unless he has expressly waived this right in said policy. Notwithstanding
the foregoing, in the event the insured does not change the beneficiary during his
lifetime, the designation shall be deemed irrevocable.

A. BLOOD RELATIONSHIP
- The natural affection is considered sufficient

BENEFICIARY: the person who is named or designated in a contract of LIFE, ACCIDENT OR

HEALTH insurance to receive the benefits which become payable, according to the terms of
the contract, upon the death of the insured.

B. OBLIGED TO SUPPORT EACH OTHER

1. The spouses
2. Legitimate ascendants and descendants
3. Parents
4. Legitimate brothers and sisters, whether of the full or half-blood

Limitations on the appointment of beneficiary

- A person may take out a policy of insurance upon his own life and make it payable to
whomsoever he pleases, irrespective of the beneficiarys lack of insurable interest, provides
he acts in good faith and without intent to make the transaction merely a cover for a
forbidden wagering contract

C. RELATED BY CONTACT/COMMERCIAL RELATIONS

- Life of employee, manager, co-partner
- The death or illness of the insured person who is under a legal obligation, might delay or
prevent its performance
- A creditor may insure his debtor's life but only up to the extent of the amount of the debt
The insurance does NOT inure to the benefit of the debtor unless the contrary is
expressly stipulated (Contract purely between the insurer and the insuring creditor)
The insuring creditor could only recover amounts as remain unpaid at the time of death
A creditor may NOT insure the life of his debtor unless the latter has a LEGAL
OBLIGATION to him for the payment of money.

Civil Code Limitations on the appointment of beneficiary: Art. 739

(1) Those made between persons who were guilty of adultery or concubinage at the
time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by reason
of his office.
- It is NOT required that there be a previous conviction for adultery or concubinage

D. UPON WHICH AN ESTATE OR INTEREST DEPENDS

- One may insure the life of a person where the continuation of the estate or interest
vested in him who takes the insurance depends upon the life insured
- Ex. The beneficiary of a usufruct has an insurable interest upon the life of the owner of
the property
2 VIEWS: Is the consent of the person whose life is insured essential?
1. Essential to the validity of the policy: to avoid the strong temptation to hasten the death of
the insured by criminal means; the very consent is a strong evidence of good faith of the
person procuring the insurance
2. Not essential to the validity of the policy: based on Sec. 10, the consent of the person
insured is NOT essential. So long as it could be proved that the assured has a legal
insurable interest AT THE INCEPTION OF THE POLICY, the insurance is valid even
without such consent

RIGHT OF THE INSURED TO CHANGE BENEFICIARY IN LIFE INSURANCE

The insured has the power to change the beneficiary without the consent of the latter who
acquires NO VESTED RIGHT but only an expectancy of receiving the proceed
The insureds power to extinguish the beneficiarys interest ceases at his death, and cannot
be exercised by his personal representatives or assignees
If the right to change the beneficiary is EXPRESSLY WAIVED in the policy, then the insured
has NO power to make such change without the consent of the beneficiary
- The beneficiary thus has an absolute and vested interest on the policy from the date of
its issuance and delivery
- He has a property right in the policy of which he could not be deprived of without his
consent
2 VIEWS ON THE EFFECT IF BENEFICIARY DIES BEFORE THE INSURED
1. Beneficiarys representative is entitled to insurance proceeds: it would necessarily follow
as a consequence of the VESTED INTEREST RULE
2. Estate of the insured is entitled to the proceeds: express condition to pay if surviving

SEC. 12. The interest of a beneficiary in a life insurance policy shall be forfeited
when the beneficiary is the principal, accomplice, or accessory in willfully bringing
about the death of the insured. In such a case, the share forfeited shall pass on to
the other beneficiaries, unless otherwise disqualified. In the absence of other
beneficiaries, the proceeds shall be paid in accordance with the policy contract. If the
policy contract is silent, the proceeds shall be paid to the estate of the insured.

The INTEREST means the right of the beneficiary to receive the proceeds of the life
insurance policy; it does NOT mean insurable interest in the life of the insured

In case the interest of the beneficiary in a life insurance policy is forfeited, the nearest
relatives of the INSURED shall inherit the proceeds paid to the estate of the insured

NEAREST RELATIVES OF THE INSURED

1.
2.
3.
4.
5.
6.

Legitimate Children
The father and mother, if living
The grandfather and grandmother, or ascendants nearest in degree, if living
The illegitimate children
The surviving spouse
The collateral relatives
- Brothers and sisters of the full blood, half-blood, and Nephews and nieces
7. In default of the above, the State shall to receive the insurance proceeds.
LIABILITY OF THE INSURER ON DEATH OF INSURED
1. Death at the hands of the law: as by legal execution, is one of the risks assumed by the
insurer under a life insurance policy in the absence of a valid policy exception
2. Death by self-destruction: procuring a policy with intent to commit suicide is obviously
fraudulent and avoids the insurance
- The insurer is NOT liable in case the insured commits suicide intentionally, with whatever
motive, when in sound mind
- But death which is purely accidental, even though due to insureds own carelessness or
negligence is NOT EXCLUDED from the coverage
- Death by suicide while insane does NOT discharge the insurer from his liability on his
contract
3. Death caused by the beneficiary: his interest shall be forfeited
- But if the killing was accidental or in self-defense, or when the beneficiary was insane,
the rights of the beneficiary under the policy are not affected
- The insurer may properly insert in the contract an express provision excepting from
coverage death caused by the beneficiary, whether lawfully or unlawfully
4. Death caused by violation of law: to avoid liability, the insurer must establish that the
commission of the felony had a causal connection with the accident resulting in the death
of the insured

SEC. 13. Every interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured, is an insurable interest.

The principle may be stated generally that anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss from its destruction.

Title or right to possession NOT ESSENTIAL to have insurable interest upon a property
Ones property interest is NOT determined by concept of title, but whether the insured
has substantial economic interest in the property

- As a general rule, however, the expectation of benefit to be derived from the continued
existence of property must have a basis of legal right, although the person insured has
no title, either legal or equitable, to the property insured

SEC. 14. An insurable interest in property may consist in:

(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the
expectancy arises.

EXISTING INTEREST: may be a legal title or equitable title

INCHOATE INTEREST: a stockholder to the assets of the corporation; partner-partnership
EXPECTANCY: farmer-future crops; businessman-loss of profits
SEC. 15. A carrier or depository of any kind has an insurable interest in a thing held
by him as such, to the extent of his liability but not to exceed the value thereof.

- The loss of the thing may cause liability to the carrier or depositary to the extent of its value
- A warehouseman licensed to engage in the business of receiving commodities for storage,
is required to insure the same against FIRE under the General Bonded Warehouse Act

SEC. 16. A mere contingent or expectant interest in any thing, not founded on an
actual right to the thing, nor upon any valid contract for it, is not insurable.

- A father cannot insure his sons property nor can a son insure the property that he expects
to inherit from his father as his interest is merely an expectancy of inheriting

But a LEGITIME may be a possible basis for a claim to an insurable interest

- Nor can a general or unsecured creditor insure specific property of his debtor who is alive

 But an unsecured creditor may insure the property of a deceased debtor since all
-

But the interest insured need not exist in the meantime: alienation of insured property will

personal liability ceases with the death of the debtor

One named as a beneficiary in a will has no insurable interest in a property designated
BEFORE the testators death, however reasonable his expectation of benefit to be derived
from the continued existence of the property
The will can be revoked at any time before the death of the testator unless he has
expressly waived his right in the policy (Sec. 11) in which case the beneficiary will have
insurable interest

NOT defeat a recovery if the insured has subsequently reacquired the property and
possesses an insurable interest at the time of loss
- OPINION OF DE LEON (p. 127): that the existence of an insurable interest at the
inception of the contract, unless made so by stature, is NOT AT ALL NECESSARY TO
ITS VALIDITY. It is sufficient that insurable interest exists at the time the risk attaches
LIFE INSURANCE

SEC. 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.

The purpose of property insurance is to indemnify a person against ACTUAL LOSS, and
not to wager on the happening of the event

SEC. 18. No contract or policy of insurance on property shall be enforceable except

for the benefit of some person having an insurable interest in the property insured.

PROPERTY INSURANCE

Extent of Insurable Interest

Unlimited (except life of debtor)

Limited to the actual value

When Insurable Interest

MUST EXIST

Exists at the time the policy takes

effect and need NOT exist at the
time of loss

Must exist when the insurance takes

effect, and when the loss occurs, but
need not exist in the meantime

SEC. 20. Except in the cases specified in the next four sections, and in the cases of
life, accident, and health insurance, a change of interest in any part of a thing
insured unaccompanied by a corresponding change of interest in the insurance,
suspends the insurance to an equivalent extent, until the interest in the thing and the
interest in the insurance are vested in the same person.

PRINCIPLE OF INDEMNITY: an insurance taken out by a person on property in which he

has no insurable interest is VOID

- Although the insurer had full knowledge of the fact of non-ownership and even if the
-

insured subsequently acquired insurable interest, the insurance is VOID

An automatic assignment of fire insurance policy by the lessee (to his goods) to the
lessor is VOID for being contrary to law and public policy
- If the insurance is invalidated on the ground that no insurable interest exists, the
premium is ORDINARILY RETURNED unless he is in pari deluxe with the insurer

DOCTRINE OF WAIVER or ESTOPPEL: cannot be invoked since the public has an

interest in the matter independent of the consent or concurrence of the parties

SEC. 19. An interest in property insured must exist when the insurance takes effect,
and when the loss occurs, but need not exist in the meantime; and interest in the life
or health of a person insured must exist when the insurance takes effect, but need
not exist thereafter or when the loss occurs.

The general rule in this section is applicable ONLY to insurance on PROPERTY and NOT
TO LIFE INSURANCE except that on the life of the debtor

2 distinct times when insurable interest in the property must exist:

1. On the date of execution of the contract
2. On the date of the occurrence of the risk insured against

Generally speaking, the mere transfer of a thing insured does NOT transfer the policy but

suspends it until the same person becomes the owner of both the policy and the thing
insured
The contract is NOT VOIDED but is merely suspended by a change of interest
The object of this provision against alienation is to provide against changes which might
supply a motive to destroy the property, or might lessen the interest of the insured in
protecting and guarding it
EXCEPTIONS to the rule that change of interest suspends the insurance
1. In life, health, and accident insurance
2. A change of interest in the thing insured AFTER the occurrence of an injury which
results in a loss (Sec. 21)
3. A change of interest in one or more of several things, SEPARATELY INSURED by
ONE POLICY (Sec. 22)
4. A change of interest by will or succession on the death of the insured (Sec. 23)
5. A transfer of interest by one of several partners, joint owners, or owners in common,
who are jointly insured, to the others (Sec. 24)
6. When a policy is so framed that it will inure to the benefit of whomsoever, during the
continuance of the risk, may become the owner of the interest insured (Sec. 57)
7. When there is an express prohibition against alienation in the policy: the policy is not
merely suspended but is avoided

SEC. 21. A change of interest in a thing insured, after the occurrence of an injury
which results in a loss, does not affect the right of the insured to indemnity for the
loss.

After a loss has happened, the liability of the insurer becomes fixed
The insured has a right to assign his claim: ABSOLUTE and cannot be delimited by
agreement

SEC. 22. A change of interest in one or more of several distinct things, separately
insured by one policy, does not avoid the insurance as to the others.

In a DIVISIBLE CONTRACT: the cause or consideration is made up of several parts

- The violation of a condition which avoids the policy with respect to one or more of the

things does NOT affect the others

INDIVISIBLE CONTRACT: the consideration is entire and single
- A change of interest in one or more of the things will avoid the insurance as to others

Whether a contract is entire or severable is a QUESTION OF INTENTION to be determined

SEC. 25. Every stipulation in a policy of insurance for the payment of loss whether
the person insured has or has not any interest in the property insured, or that the
policy shall be received as proof of such interest, and every policy executed by way
of gaming or wagering, is void.

WAGER POLICY: a pretended insurance where the insured has no insurable interest in the
thing insured and can sustain no loss by the happening of the misfortunes insured against

Whether or not insurable interest exists does NOT DEPEND UPON THE STIPULATIONS
IN THE CONTRACT

The defense of absence of insurable interest is available ONLY TO THE INSURER and for
the benefit of the insurer alone

SEC. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.

CONCEALMENT: the intentional withholding by the insured of any fact material to the risk
4 Primary Concerns of Parties to an Insurance Contract

by the language employed by the parties

SEC. 23. A change of interest, by will or succession, on the death of the insured,
does not avoid an insurance; and his interest in the insurance passes to the person
taking his interest in the thing insured.

The insurance on property passes AUTOMATICALLY, on the death of the insured, to the
heir, legatee or devisee who acquired interest in the thing insured

SEC. 24. A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others, does not avoid an insurance even
though it has been agreed that the insurance shall cease upon an alienation of the
thing insured.

The underlying principle is that each owner-in-common is interested in the whole property

and the hazard is NOT INCREASED because the purchasing partner has acquired a
greater interest in the property by a transfer of his co-partners share
It is alienation or transfer to a stranger or a 3rd person that will avoid the policy
- A sale by a partner of his interest to a stranger ends the contract of insurance as to him
but does NOT affect the insurance as to others

1. The correct estimation of the risk

2. The precise delimitation of the risk
3. Such control of the risk after it is assumed
4. Determining whether a loss occurred
Devices for ascertaining and controlling risk and loss
A. Devices of CONCEALMENT and REPRESENTATIONS: to enable the insurer to
secure the same information with respect to the risk that was possessed by the
applicant for insurance
B. WARRANTIES and CONDITIONS: dealing with conditions existing at the inception of
the contract
C. EXCEPTIONS: used for the purpose of making more definite and certain the general
words used to describe the risk the insurer undertook to bear and by excluding certain
specified risks that otherwise would have been included under the general language
describing the risks assumed
D. EXECUTORY WARRANTIES and CONDITIONS: undertakings that certain conditions
should or should not exist in the future, are used to enable the insurer to rescind the
contract in case subsequent events increased the risk to such an extent that he is no
longer willing to bear
E. CONDITIONS PRECEDENT: the insurer must also protect himself against fraudulent
claims of loss by inserting in the policy various conditions requiring immediate notice of
loss, action brought within a limited period of time, appointment of appraisers and for
arbitration to determine amount of loss

REQUISITES of Concealment
1. A party knows the fact which he neglects to communicate or disclose to the other
2. Such party concealing is duty-bound to disclose such fact to the other
3. Such party concealing makes NO WARRANTY of the fact concealed
4. The other party has NO MEANS of ascertaining the fact concealed
Where a warranty is made of the fact concealed, the non-disclosure of such fact is NOT
concealment but constitutes a violation of warranty

SEC. 29. An intentional and fraudulent omission, on the part of one insured, to
communicate information of matters proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.

This section relates to the falsity of a warranty

Unlike ordinary concealment in Sec. 27, the non-disclosure under Sec. 29 must be
INTENTIONAL & FRAUDULENT in order that the contract may be rescinded

SEC. 27. A concealment whether intentional or unintentional entitles the injured party
to rescind a contract of insurance.

Effect of concealment by the INSURED: as a rule, failure of the insured to disclose

conditions affecting the risk, OF WHICH HE IS AWARE, makes the contract VOIDABLE at
the insurers option.
- It is strictly interpreted by the courts and is not limited to material facts which the
applicant knows, but extends to those which he ought to know
- It is no defense to plead mistake or forgetfulness
Effect of concealment by the INSURER: same as to the insured

PROOF OF FRAUD IN CONCEALMENT

The insurer need NOT PROVE fraud in order to rescind a contract on the ground of
concealment
Existence of fraud is NOT REQUIRED: the duty to communicate is independent of the
intention and is violated by the fact of concealment, even when there is NO DESIGN TO
DECEIVE.
Was the insurer misled or deceived into entering a contract obligation or in fixing the
premium of insurance by a withholding of material information or facts within the assureds
knowledge or presumed knowledge?

SEC. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all facts within his knowledge which are material to the contract and as to
which he makes no warranty, and which the other has not the means of ascertaining.

Matters that must be communicated even in the absence of inquiry

1. Material to the contract
2. The other has no means of ascertaining the said facts
3. As to which the party with the duty to communicate makes NO WARRANTY

TEST: If the applicant is aware of the existence of some circumstances which he knows
would influence the insurer in acting upon his application, good faith requires him to
disclose that circumstance, though unasked.

The omission is on the part of the INSURED and the party entitled to rescind is the
INSURER

SEC. 30. Neither party to a contract of insurance is bound to communicate

information of the matters following, except in answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to know, and of
which the former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a
warranty, and which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not
otherwise material.

As a general proposition, matters made the subject of inquiry must be deemed MATERIAL,
even though otherwise they might not be so regarded

The failure of an apparently complete answer to make full disclosure will avoid the policy
But an answer incomplete on its face will NOT defeat the policy in the absence of bad faith
The insured CANNOT be penalised for failure to disclose matters already known to the
insurer

The insurer cannot complain of the insureds failure to disclose facts that concern only risks
excepted from the policy, either expressly or by warranty, from the liability assumed under
the policy

SEC. 31. Materiality is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries.

The test it the effect of the knowledge of the fact in question on the making of the contract

 To be material, a fact need NOT INCREASE the risk or contribute to any damage suffered.
The matter must be determined ultimately by the court
The insured CANNOT be guilty of concealment if the fact concealed is NOT MATERIAL
INSURERs Standpoint: a fact is material if the knowledge of it would have a probable and
reasonable influence upon the insurer in assessing the risk involved and in making or
omitting further inquiries, and cause him either to reject the risk or to accept it only at a
higher premium rate or on different terms

- A mans state of mind or subjective belief is NOT capable of proof in our judicial process,
except through proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn
TIME WHEN INFORMATION ACQUIRED
- NO information possessed by one party can be material, in the sense of requiring
disclosure, unless it is possible that it may influence the other in the making of the contract
- AFTER the contract has become effect, there is NO DUTY resting upon the insured to
disclose it, even though the policy is yet to issue
- Concealment must take effect at the time the contract is entered into in order that the
policy may be avoided and not afterwards
- The duty of disclosure ends with the completion and effectively of the contract
- BEFORE the contract becomes effective, an applicant for life insurance is under a duty atto
disclose to the insurer changes in his health coming to his knowledge between the date of
submitting his application and the date the policy is delivered

SEC. 32. Each party to a contract of insurance is bound to know all the general
causes which are open to his inquiry, equally with that of the other, and which may
affect the political or material perils contemplated; and all general usages of trade.

The insured need NOT communicate public events, the sources of this information being
equally open to the insurer who is therefore presumed to know them

The insurer is charged with the knowledge of the general trade usages and rules of
navigation, kind of seasons, and all the risks connected with navigation

SEC. 33. The right to information of material facts may be waived, either by the terms
of insurance or by neglect to make inquiry as to such facts, where they are distinctly
implied in other facts of which information is communicated.

If the applicant has answered the questions asked in the application, he is justified in

SEC. 34. Information of the nature or amount of the interest of one insured need not
be communicated unless in answer to an inquiry, except as prescribed by Section
51.

Under Sec. 51(e), it is REQUIRED that a policy of insurance must specify the interest if the
insured in the property insured, IF HE IS NOT THE ABSOLUTE OWNER THEREOF

- Such requirement is made so that the insurer may determine the extent of the insureds
insurable interest

- But there is no need to disclose the interest in the property insured if it is absolute
SEC. 35. Neither party to a contract of insurance is bound to communicate, even
upon inquiry, information of his own judgment upon the matters in question.

The duty to disclose is confined to facts.

There is NO DUTY to disclose mere opinion, speculation, intention or expectation
This is true even if the insured is asked
SEC. 36. A representation may be oral or written.

REPRESENTATION: a statement made by the insured at the time of, or prior to, the
issuance of the policy, relative to the risk to be insured, as to an existing or past fact or
state of facts, or concerning a future happening, to give information to the insurer and
otherwise induce him to enter into the insurance contract

MISREPRESENTATION is an affirmative defense. To avoid liability, the INSURER has the

duty to establish such a defense by satisfactory and convincing evidence
1. A statement as a fact of something which is untrue
2. Which the insured stated with knowledge that it is untrue and with an intent to deceive,
or which he states positively as true without knowing it to be true and which has a
tendency to mislead
3. Where such fact in either case is MATERIAL to the risk
- Such a misrepresentation by the insured renders the insurance contract VOIDABLE at
the option of the insurer, even though innocently made and without wrongful intent
- Representations intended as collateral inducements to the contract are NOT part of the
contract unless expressly made so

SEC. 37. A representation may be made at the time of, or before, issuance of the
policy.

assuming that NO FURTHER INFORMATION IS DESIRED.

A waiver is a type of estoppel

The very nature of representation requires that it PRECEDE the execution of the contract

SEC. 38. The language of a representation is to be interpreted by the same rules as

the language of contracts in general.

Representations are construed liberally in favor of the INSURED, and are required to be
ONLY SUBSTANTIALLY TRUE.
- Warranties, by contrast, must be literally true, or the contract will fail

SEC. 39. A representation as to the future is to be deemed a promise, unless it

appears that it was merely a statement of belief or expectation.

A representation may be performed AFTER the issuance of the policy

AFFIRMATIVE REPRESENTATION: any allegation as to the existence or non-existence of
a fact when the contract begins

PROMISSORY REPRESENTATION: any promise to be fulfilled after the contract has come
into existence or any statement concerning what is to happen during the existence of the
insurance
- It is substantially a CONDITION or WARRANTY

A representation of the expectation, intention, belief, opinion or judgment of the insured,

although false, will NOT avoid a policy of insurance IF THERE IS NO ACTUAL FRAUD in
inducing the acceptance of the risk, or its acceptance at a lower rate of premium
To avoid liability, the insurer must prove BOTH materiality of the insureds opinion and the
latters intent to deceive
An oral representation as to a future event or condition, over which the insured has no
control, with reference to property or life insured, will be deemed a mere expression of
opinion which will avoid a contract only when made in bad faith

SEC. 40. A representation cannot qualify an express provision in a contract of

insurance, but it may qualify an implied warranty.

A representation cannot qualify an express provision or an express warranty in a contract

of insurance

But it may qualify an implied warranty

SEC. 41. A representation may be altered or withdrawn before the insurance is
effected, but not afterwards.

SEC. 42. A representation must be presumed to refer to the date on which the
contract goes into effect.

Representation refer only to the time of making the contract.

It results that there is NO false representation, if it is true at the time the contract takes
effect although false at the time it was made

SEC. 43. When a person insured has no personal knowledge of a fact, he may
nevertheless repeat information which he has upon the subject, and which he
believes to be true, with the explanation that he does so on the information of others;
or he may submit the information, in its whole extent, to the insurer; and in neither
case is he responsible for its truth, unless it proceeds from an agent of the insured,
whose duty it is to give the information.

The insured is given discretion to communicate to the insurer what he knows of a matter of
which he has no personal knowledge. If the representation turns out to be false, he is NOT
responsible therefore, provided he gives explanation that he does so on the information of
others

SEC. 44. A representation is to be deemed false when the facts fail to correspond
with its assertions or stipulations.

A representation is substantially true when it is true in every particular material to the risk
Where a representation partly fails but is true or is complied with so far as is essential to
the risk insured against, the policy remains in force

A representation written in the policy will rather be construed, when possible, as an

affirmative representation of a present fact in order to save the policy from avoidance

SEC. 45. If a representation is false in a material point, whether affirmative or

promissory, the injured party is entitled to rescind the contract from the time when
the representation becomes false.

Fraud or intent to misrepresent facts is NOT ESSENTIAL to entitle the injured party to
rescind a contract of insurance on the ground of false representation

To be deemed false, it is sufficient if the representation fails to correspond with the facts
(Sec.44) in a material point (Sec. 45)

Representations of fact are the foundation of the contract; and if the foundation does not
exist, the superstructure does not arise.

A representation, NOT being a part of the contract of insurance, may be altered or

withdrawn before the contract actually takes effect but NOT afterwards

SEC. 46. The materiality of a representation is determined by the same rules as the
materiality of a concealment.

The materiality of the representation is to be determined not by the event, but solely by the

PROBABLE & REASONABLE INFLUENCE OF THE FACTS upon the party to whom the
representation is made
The matter misrepresented must be of that character which the court can say would
reasonably affect the insurers judgment
Concealment

Misrepresentation

Insured withholds information of material facts from

the insurer

Insured makes erroneous statements of facts with the

intent of inducing the insurer to enter into the
insurance contract

SEC. 47. The provisions of this chapter apply as well to a modification of a contract
of insurance as to its original formation.

The provisions of Sec. 26-35 governing concealment and Sec. 36-48 governing
representations apply not only to the original formation of the contract but also to a
modification of the same during the time it is in force

SEC. 48. Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two (2) years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.

In general, a defense to an action to recover insurance that the policy was obtained

through false representation, fraud and deceit is not in the nature of an action to rescind,
and is therefore, NOT BARRED BY THE PROVISION
- There is NO TIME LIMIT imposed for interposing this defense
Fo NON-LIFE POLICY, in order that the insurer may rescind a contract of insurance, such
right must be exercised PRIOR to the commencement of an action on the contract
For LIFE POLICY, the defenses mentioned are available only during the FIRST 2 YEARS
of a life insurance policy

- INCONTESTABLE CLAUSES: clauses in life insurance policies stipulating that the

policy shall be incontestable after a stated period; create a kind of contractual statute of
limitations
REQUISITES for incontestability:
1. The policy is a life insurance policy
2. It is payable on the death of the insured
3. It has been in force during the lifetime of the insured for at least 2 years from its date of
issue or of its last reinstatement
- The period of 2 years may be shortened but it cannot be extended by stipulation
EFFECT when the policy becomes incontestable: the insurer may NOT refuse to pay:
1. By claiming that the policy is void ab initio
2. Rescissible by reason of FRAUDULENT CONCEALMENT of the insured or his agent
3. Rescissible by reason of FRAUDULENT MISREPRESENTATION of the insured/agent
The fraud contemplated is fraud in the inducement
DEFENSES NOT BARRED BY INCONTESTABLE CLAUSE
1. That the person taking the insurance lacked insurable interest as required by law
2. That the cause of death of the insured is an EXCEPTED RISK
3. That the premiums have not been paid
4. That the conditions of the policy relating to military or naval service have been violated
5. That the fraud is of a particularly vicious type
6. That the beneficiary failed to furnish proof of death or to comply with any condition
imposed by the policy after the loss has happened
7. That the action was not brought within the time specified
Incontestability ONLY deprives the insurer of those defenses which arise in connection with
the formation and operation of the policy prior to the loss

- But if the terms of the contract are clear and unambiguous, there is no room for
SEC. 49. The written instrument in which a contract of insurance is set forth, is called
a policy of insurance.
SEC. 50. The policy shall be in printed form which may contain blank spaces; and
any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary
to complete the contract of insurance shall be written on the blank spaces provided
therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of
insurance and which is pasted or attached to said policy is not binding on the
insured, unless the descriptive title or name of the rider, clause, warranty or
endorsement is also mentioned and written on the blank spaces provided in the
policy.
Unless applied for by the insured or owner, any rider, clause, warranty or
endorsement issued after the original policy shall be countersigned by the insured or
owner, which countersignature shall be taken as his agreement to the contents of
such rider, clause, warranty or endorsement.
Notwithstanding the foregoing, the policy may be in electronic form subject to the
pertinent provisions of Republic Act No. 8792, otherwise known as the Electronic
Commerce Act and to such rules and regulations as may be prescribed by the
Commissioner.

POLICY OF INSURANCE: Sec. 49

- The policy is signed ONLY by the insurer or his duly authorized agent
- It need NOT be signed by the insured except where express warranties are contained in
a separate instrument forming part of the policy (Sec. 70)

- To create an enforceable agreement, all the requisites necessary in order that there will
be a valid contract of insurance must be present

Policy, a contract of adhesion: one party having superior bargaining power imposes its
choice of terms on the other party

- Except for RIDERS which may later be inserted, the insured sees the contract in its final
form and had no voice in the selection of the words employed therein

- Any ambiguity on contracts of adhesion will be resolved liberally in favor of the insured

construction

- The courts will only rule out blind adherence to terms where facts and circumstances will
show that they are basically one-sided. The fine-print or contract of adhesion rule does
not apply to a businessman of acute experience who is presumed who have assented to
the provisions of the policy and therefore, cannot claim he did not know its terms.
Policy of Insurance

Contract of Insurance

Formal written instrument evidencing the contract

The law between the parties

Generally required in standard forms approved by the

Insurance Commissioner

Every contract of insurance must be evidenced by a

policy

FORM of contract of insurance

Modern-day insurance contracts are evidenced or in electronic form BY WRITING
This writing may be informal, as a binding slip, or a written application informally accepted
Under the Code, the policy must be in printed form
- In case of conflict between the written and printed portions of a policy, the written portion
prevails
PERFECTION of insurance contract
If an application for insurance has NOT been either accepted or rejected by the insurer,
there is NO CONTRACT YET as it is merely an offer or proposal
- The mere signing of an application for life insurance and the payment of the first
premium does NOT bind the insurer to issue the policy
- The acceptance of the insurance policy must be unconditional, but it need not be by
formal act. Reception and retention of the policy without objection beyond a reasonable
time may be deemed to be an acceptance
- Unreasonable time may constitute an acceptance, especially where the insurer was
guilty of negligent delay in acting on the application
If the parties imposed additional CONDITIONS PRECEDENT to the validity of the policy as
a contract, the conditions shall be fulfilled first and until such time, the policy is of NO
BINDING EFFECT
COVER NOTES: may be issued to bind the insurance temporarily pending the issuance of
the policy

and strictly against the insurer

- It is also a cardinal principle of law that FORFEITURES ARE NOT FAVORED and that
any construction which would result in the forfeiture of the policy benefits for the person
claiming thereunder will be avoided if it is possible to construe the policy in a manner
which would permit recovery

OFFER AND ACCEPTANCE IN INSURANCE CONTRACT

In property and liability insurance: the offer is usually accepted by an insurance agent on
behalf of the insurer
In life and health insurance: depends on the situation
- If the insured does NOT pay the premium at the time he applies for insurance: his
application is considered an INVITATION to the insurer to make an offer

- If the insured pays the premium with his application, his application will be considered an
OFFER

Life and health insurance agents do NOT have the authority to bind immediately the

insurers they represent

They customarily issue a BINDING RECEIPT that makes the coverage effective on the
date of application or the date of the medical examination: CONDITIONAL
ACCEPTANCE BY THE INSURER

DELIVERY: the act of putting the insurance policy -the physical document- into the
possession of the insured
The delivery of the policy is NOT a prerequisite to a valid contract of insurance
- The actual manual transfer of the policy is NOT a prerequisite to its validity unless the
parties have so agreed in clear language. Constructive delivery may be sufficient
2 VIEWS of delivery to insurers agent as delivery to the insured
1. The beneficiary CANNOT RECOVER for the simple reason that the insurance agent is not
his agent
2. The beneficiary can recover on the theory that the contract is to be deemed complete
when the policy has been delivered to the insurance agent
RIDER: a small printed or typed stipulation contained on a slip of paper attached to the policy
and forming an integral part of the policy
Any rider properly attached to the policy is a part of the contract and with like effect as if
actually embodied in the policy
Necessity to add a new provision to a policy: to save trouble and expense of making an
entirely new contract
When there is an inconsistent between a rider and the printed stipulation in the policy, the
RIDER PREVAILS, as being a more deliberate expression of the agreement of the
contracting parties
Any rider is NOT BINDING ON THE INSURED unless the descriptive title or name of the
rider is also mentioned and written on the blank spaces provided in the policy
The fact that the rider is without signature of the INSURER or of the INSURED will NOT
PREVENT its inclusion and construction as a part of the contract
EFFECT of failure of insured to read policy
MAJORITY RULE: it is judicially recognized that it is customary for insured persons to
accept policies without reading it and it is NOT NEGLIGENCE PER SE
MINORITY RULE: the rule of general contract law that a person is conclusively presumed
to know and assent to its contents

SEC. 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is
only determinable upon the termination of the contract, a statement of the basis
and rates upon which the final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner
thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
CONTENTS OF THE POLICY
1. Names of the parties: essential in all contracts
2. Amount of insurance: to determine the amount of indemnity to be paid to the insured in
case of loss or damage
- It need not be specified in the cases of OPEN or RUNNING POLICIES
3. Premium to be paid: represents the consideration of the contract
4. Property or life insured: constitutes the subject matter of the contract
5. Interest of the insured in the property: especially important in FIRE POLICIES
6. Risks insured against: generally speaking, all foreseeable losses or risks may be insured
against except those repugnant to public policy or positively prohibited, or those
occasioned by the insureds own fraud or misconduct
7. Term or duration of the insurance: the life of the policy
- ANNUAL POLICIES: term of 12 months
- SHORT PERIOD POLICIES: lesser period
KINDS OF INSURABLE RISKS
1. Personal Risks: chiefly concerned with time of death or disability
2. Property Risks: involving loss or damage to property
3. Liability Risks: involving liability for the injury to the person or property of others
Risk
The chance of loss based on
known and unknown factors

Peril

Hazard

The contingent or unknown event

which may cause a loss

The condition or factor which may

create or increase the chance of
loss from a given peril

REQUIREMENTS for risks to be insurable

NOT all risks are insurable. But the requirements for insurable risk are NOT ABSOLUTE
1. IMPORTANCE: the loss should be important enough to warrant the existence of an
insurance contract
2. CALCULABILITY: the risk must permit a reasonable statistical estimate of the chance of
loss and possible variations from the estimate
3. DEFINITENESS OF LOSS: the losses should be fairly definite as to cause, time, place,
and amount
4. NO CATASTROPHIC LOSS: it is usual to exclude political and war risks from most
insurance policies although these risks mays sometimes be shouldered by the State
5. ACCIDENTAL NATURE: insurance is intended to cover fortuitous events or unexpected
losses

SEC. 52. Cover notes may be issued to bind insurance temporarily pending the
issuance of the policy. Within sixty (60) days after issue of a cover note, a policy
shall be issued in lieu thereof, including within its terms the identical insurance bound
under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty (60) days with the
written approval of the Commissioner if he determines that such extension is not
contrary to and is not for the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations governing such extensions for
the purpose of preventing such violations and may by such rules and regulations
dispense with the requirement of written approval by him in the case of extension in
compliance with such rules and regulations.

PRELIMINARY CONTRACT OF PRESENT INSURANCE: the insurer insures the subject

matter by a binding slip, binder or cover note

The contract is to be effective until the formal policy is issued or the risk is rejected
The binder is actually a temporary contract and is usually issued after the applicant pays

the first premium

It is intended to give temporary protection pending the investigation of the risk by the
insurer

COVER NOTES: are short-term insurance policies that may be issued to afford immediate
provisional protection to the insured until the insurer can inspect or evaluate the risk in
question and issue the proper policy
- By their nature, cover notes do not contain particulars that would serve as basis for the
computation of the premiums: NO separate premiums are intended or required to be paid
therefor
RULES on cover notes
1. Insurance companies doing business in the PH may issue cover notes to bind insurance
temporarily, pending the issuance of the policy
2. A cover note shall be deemed a contract of insurance within the meaning of Sec.1(1)
3. No cover note shall be issued or renewed unless in the form previously approved by the
Insurance Commission
4. A cover note shall be valid and binding for a period NOT EXCEEDING 60 DAYS from the
date of its issuance, whether or not the premium therefor has been paid, but such cover
note may be cancelled by either party upon at least 7 days notice to the other party
5. If a cover note is not so cancelled, a policy of insurance shall, within 60 DAYS AFTER
THE ISSUANCE OF SUCH COVER NOTE, be issued in lieu thereof
6. A cover note may be extended or renewed beyond the aforementioned period of 60 days
with the WRITTEN APPROVAL OF THE INSURANCE COMMISSION
7. Insurance companies may impose on cover notes a deposit premium equivalent to at
least 25% of the estimated premium of the intended insurance coverage but in no case
less than Php500

SEC. 53. The insurance proceeds shall be applied exclusively to the proper interest
of the person in whose name or for whose benefit it is made unless otherwise
specified in the policy.

Third persons have no right to the proceeds of the policy unless there be some contract of
trust, express or implied, between the insured and third persons

Pursuant to Sec. 53, only the INSURED, if still alive, or the beneficiary, if the insured is
already deceased, is entitled to claim the insurance proceeds upon the maturation of the
policy

PRELIMINARY EXECUTORY CONTRACT OF INSURANCE: the right acquired by the

insured is merely to demand the delivery of a policy in accordance with the terms agreed
upon and the obligation assumed by the insurer is to deliver such policy

SEC. 54. When an insurance contract is executed with an agent or trustee as the
insured, the fact that his principal or beneficiary is the real party in interest may be
indicated by describing the insured as agent or trustee, or by other general words in
the policy.

The agent or trustee when making an insurance contract should indicate that he is merely
acting in a representative capacity by signing as such agent or by other general terms

SEC. 55. To render an insurance effected by one partner or part-owner, applicable to

the interest of his co-partners or other part-owners, it is necessary that the terms of
the policy should be such as are applicable to the joint or common interest.

A partner has an insurable interest in the firm property which will support a policy taken out
thereon for his own benefit

A partner who insures partnership property IN HIS OWN NAME limits the contract to his
individual share unless the terms of the policy clearly show that the insurance was meant to
cover also the shares of the other partners

SEC. 56. When the description of the insured in a policy is so general that it may
comprehend any person or any class of persons, only he who can show that it was
intended to include him, can claim the benefit of the policy.
SEC. 57. A policy may be so framed that it will inure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest insured.

The policy of insurance must specify the parties between whom the contract is made.
The person claiming benefit of the policy must show that he is the person named or
described or that he belongs to the class of persons comprehended in the policy

SEC. 58. The mere transfer of a thing insured does not transfer the policy, but
suspends it until the same person becomes the owner of both the policy and the
thing insured.

A purchases of property who does not take the precaution to obtain a transfer of the policy
of insurance CANNOT, in case of loss, recover upon such contract

EXCEPTIONS to this rule: Sec. 20-24 and 57

SEC. 59. A policy is either open, valued or running.
SEC. 60. An open policy is one in which the value of the thing insured is not agreed
upon, and the amount of the insurance merely represents the insurers maximum
liability. The value of such thing insured shall be ascertained at the time of the loss.
SEC. 61. A valued policy is one which expresses on its face an agreement that the
thing insured shall be valued at a specific sum.
SEC. 62. A running policy is one which contemplates successive insurances, and
which provides that the object of the policy may be from time to time defined,
especially as to the subjects of insurance, by additional statements or indorsements.

KINDS OF POLICIES
1. OPEN or UNVALUED POLICY: (Sec. 60) it does not predetermine the value of the
insured property but establishes a MAXIMUM AMOUNT the insurer will pay in case of a
total loss of the property insured
- The INSURED must establish the FMV of the insured property at the time of the loss
- The INSURER, however, only pays the actual cash value of the property as determined
at the time of the loss
2. VALUED POLICY: (Sec. 61) the value of the insured property is PREDETERMINED and
the value is the amount to be used in case of a total loss
- In the absence of fraud or mistake, the agreed value of the thing insured will be paid in
case of total loss of the property unless the insurance is for a lower amount
- The liability of the insurer under a life policy is measured by the FACE VALUE of the
policy
3. RUNNING POLICY: (Sec. 62) intended to provide indemnity for property which CANNOT
WELL BE COVERED BY A VALUED POLICY because of its frequent change of location
and quantity
- It denotes insurance which contemplates that the risk is shifting, fluctuating or varying,
and which covers a CLASS OF PROPERTY rather than any particular thing
- BLANKET POLICY: one covering y a single amount of insurance the same kind of
property at different locations or different kinds of property at a single location
- Running policies are in reality open policies
Advantages of a Running Policy
1. He is neither underinsured nor overinsured at any time
2. He avoids cancellations that would otherwise be necessary to keep insurance adjusted to
value at each location
3. He is saved the trouble of watching his insurance and the danger of being underinsured
4. The rate is adjusted to 100% insurance

SEC. 63. A condition, stipulation, or agreement in any policy of insurance, limiting

the time for commencing an action thereunder to a period of less than one (1) year
from the time when the cause of action accrues, is void.

General Rule: a clause to the effect that an action upon the policy by the insured must be
brought within a certain period is valid and will prevail over the general law on limitations of
actions prescribed by the Civil Code (written contract: 10 years)
The rights of the parties flow from the insurance contract, hence they are not bound by
the statute of limitations nor by exemptions thereto
But if the period fixed is LESS THAN 1 YEAR from the time the cause of action accrues,
the stipulation would be VOID

 In the case of a policy of INDUSTRIAL LIFE INSURANCE, the period cannot be less

than 6 YEARS after the cause of action accrues

WHEN CAUSE OF ACTION ACCRUES: the cause of action in an insurance contract
does not accrue until the insureds claim is finally rejected by the insurer. This is because
before such final rejection, there is no real necessity for bringing suit
- A stipulation that prescriptive period begins from the happening of the loss si
repugnant to Sec. 63 because if given effect, it would reduce the period allowed to the
insured to bring his action to less than 1 year

SEC. 64. No policy of insurance other than life shall be cancelled by the insurer
except upon prior notice thereof to the insured, and no notice of cancellation shall be
effective unless it is based on the occurrence, after the effective date of the policy, of
one or more of the following:
(a) Nonpayment of premium;
(b) Conviction of a crime arising out of acts increasing the hazard insured against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions increasing the hazard insured
against;
(e) Physical changes in the property insured which result in the property becoming
uninsurable;
(f) Discovery of other insurance coverage that makes the total insurance in excess
of the value of the property insured; or
(g) A determination by the Commissioner that the continuation of the policy would
violate or would place the insurer in violation of this Code.
SEC. 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy,
or to his broker provided the broker is authorized in writing by the policy owner to
receive the notice of cancellation on his behalf, and shall state:
(a) Which of the grounds set forth in Section 64 is relied upon; and
(b) That, upon written request of the named insured, the insurer will furnish the facts
on which the cancellation is based.
CANCELLATION: broadly regarded as the right to rescind, abandon, or cancel a contract of
insurance: the termination by either the insurer of the insured of a policy of insurance before
its expiration

The insured ca cancel an insurance contract at his election by surrendering the policy.
Such surrender, however, entitles him to the return of the premiums ont he customary
short-basis
FORM and sufficiency of notice of cancellation by the insurer
1. There must be a PRIOR NOTICE of cancellation to the insured
2. The notice must be based on the occurrence, of one of the grounds stated in Sec. 64,
AFTER THE EFFECTIVE DATE OF THE POLICY
3. It must be IN WRITING, mailed or delivered to the named insured at the address shown in
the policy
4. It must state which of the grounds set forth is relied upon.
- The premium required in Sec. 64(a) must be a premium subsequent to the first, because
it speaks of non-payment AFTER the effective date of the policy

SEC. 66. In case of insurance other than life, unless the insurer at least forty-five
(45) days in advance of the end of the policy period mails or delivers to the named
insured at the address shown in the policy notice of its intention not to renew the
policy or to condition its renewal upon reduction of limits or elimination of coverages,
the named insured shall be entitled to renew the policy upon payment of the
premium due on the effective date of the renewal. Any policy written for a term of
less than one (1) year shall be considered as if written for a term of one (1) year. Any
policy written for a term longer than one (1) year or any policy with no fixed
expiration date shall be considered as if written for successive policy periods or
terms of one (1) year.

As a general rule, a renewal of insurance by the payment of a new premium and the

issuance of receipt therefor when THERE IS NO PROVISION IN THE POLICY FOR ITS
RENEWAL, is a NEW CONTRACT on the same terms as the old one
But if there is a RENEWAL PROVISION, it is not a new contract but an extension of the old
one

SEC. 67. A warranty is either expressed or implied.

WARRANTY: a statement of promise by the INSURED contained in the policy itself or
incorporated in or attached to it by proper reference, the falsity or nonfulfillment of which and
regardless of whether or not the insurer has suffered loss of prejudice as a result of the falsity
or nonfulfillment, renders the policy VOIDABLE at the election of the insurer
The contract of insurance is rendered VOIDABLE by the insurer without reference to the
materiality of the statement or promise and to whether the insurer was, in fact, prejudiced
by such breach

KINDS of warranties
1. Express Warranty: an agreement contained un the policy or clearly incorporated therein
whereby the insured stipulates that certain facts relating to the risk are or shall be true
2. Implied Warranty: a warranty which from the very nature of the contract or from the
general tenor of the words is necessarily embodied in the policy as a part thereof
- In every policy of marine insurance, there is an implied warranty that the ship is
seaworthy when the policy attaches
3. Affirmative Warranty: one which asserts the existence of a fact or condition at the time it
is made
4. Promissory Warranty: one where the insured stipulates that certain facts or conditions
pertaining to the risk shall exist or that certain things with reference thereto shall be done
or omitted
Unless the contrary intention appears, the courts will presume that the warranty is merely
affirmative

SEC. 68. A warranty may relate to the past, the present, the future, or to any or all of
these.

SEC. 70. Without prejudice to Section 51, every express warranty, made at or before
the execution of a policy, must be contained in the policy itself, or in another
instrument signed by the insured and referred to in the policy as making a part of it.
WHERE EXPRESS WARRANTY CONTAINED
In the policy itself, or another instrument: it must be signed by the INSURED and referred
to in the policy as making a part of it. Mere reference alone is NOT sufficient to give this
effect

SEC. 71. A statement in a policy, of a matter relating to the person or thing insured,
or to the risk, as fact, is an express warranty thereof.

The statement in the policy relating to the person or thing insured, or to the risk, must be a
fact and NOT as an opinion, or belief, to constitute an express warranty thereof

If it is only an expression of opinion, it is not strictly speaking a warranty of its truthfulness.

Such a statement is merely a limited warranty as to the honesty and good faith of the
insured

Although the provision employs the term warranty in general, in the case of a promissory
warranty, the same may refer ONLY TO FUTURE EVENTS

SEC. 69. No particular form of words is necessary to create a warranty.

Whether a statement made by the insured in the policy is a warranty depends upon the
intention of the parties in regard thereto

The parties must intend a statement to be a warranty and it must be included as a part of
the contract
Warranties

Representations

Considered parts of the contract

Collateral inducements to the contract

Always written on the face of the policy, actually

or by reference

May be written in a totally disconnected paper or

may be oral

Must be strictly complied with

Substantial truth is only required

Presumed material

Insurer must show materiality of representation in

order to defeat an action on the policy

Statements are to be considered a REPRESENTATION unless it is clearly intended as a

warranty

SEC. 72. A statement in a policy, which imparts that it is intended to do or not to do a

thing which materially affects the risk, is a warranty that such act or omission shall
take place.

Breach of promises or agreements as to future acts will NOT avoid the policy unless the
promises are material to the risk

The act or omission is material to the risk if it increases the risk, and under the law, only
substantial increase of risk works forfeiture of the policy which is avoided for increase in
hazard

SEC. 73. When, before the time arrives for the performance of a warranty relating to
the future, a loss insured against happens, or performance becomes unlawful at the
place of the contract, or impossible, the omission to fulfill the warranty does not
avoid the policy.

Section 73 refers to the warranties relating to the future: providing exceptions to the
general rule that breach of warranty avoids the policy
1. When loss occurs before time for performance
2. When performance becomes unlawful
3. When performance becomes impossible due to legal impossibility or physical
impossibility

SEC. 74. The violation of a material warranty, or other material provision of a policy,
on the part of either party thereto, entitles the other to rescind.

The violation of the terms of a contract of insurance entitles either party to terminate the

contractual relations.
The right of the insurer to rescind under Sec. 74 exists even though the violation was not
the direct cause of the loss.

SEC. 75. A policy may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does not avoid the policy.

When violation of immaterial provisions shall avoid the policy

The parties may expressly stipulate that the violation of a particular provision, although
immaterial, in the policy shall avoid it

By such stipulation, the parties converted an immaterial warranty into a material one
SEC. 76. A breach of warranty without fraud merely exonerates an insurer from the
time that it occurs, or where it is broken in its inception, prevents the policy from
attaching to the risk.

In order that the insurer may be entitled to rescind a contract of insurance on the ground of
a breach of warranty, fraud is NOT ESSENTIAL

FALSITY, not fraud, is the basis of liability on a warranty

When there is NO FRAUD, the policy is avoided only from the time of breach and the

INSURED is entitled to the return of premium paid at a PRO RATA rate from the time of
breach if it occurs after the inception of the contract; or to ALL PREMIUMS if it is broken
during the inception of the contract: contract is void ab initio and never becomes binding
When there is FRAUD, the policy is avoided ab initio, and the insured is NOT entitled to the
return of the premiums paid

CONDITION: an event signifying in its broadest sense either an occurrence or a nonoccurrence that alters the previously existing legal relations of the parties to the contract
CONDITION PRECEDENT: calls for the happening of some event or the performance of
some act after the terms f the contract have been agreed upon BEFORE THE CONTRACT
SHALL BE BINDING ON THE PARTIES
CONDITION SUBSEQUENT: that which pertains not to the attachment of the risk and the
inception of the policy, but to the contract of insurance after the risk has attached and
during the existence thereof

EXCEPTIONS: those inserted for the purpose of withdrawing from the coverage of the policy,
as delimited by the general language describing the risk assumed, some specific risks which
the insurer declares himself unwilling to undertake

The occurrence of breach of warranty or condition, even though temporary, renders the
entire contract VOIDABLE and event hough such breach may not have affected the risk or
contributed to the loss in any way
But the occurrence of an excepted peril does NOT affect the binding force of the contract

A breach of warranty or condition may be waived without consideration

But the insurer does NOT become liable for an excepted loss by waiver unless such
waiver amounts to a new contract on valuable consideration. The insurer cannot, by
naked waiver, assume a non-existent duty

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in the
case of a life or an industrial life policy whenever the grace period provision applies,
or whenever under the broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is given. No credit extension to a
duly licensed intermediary should exceed ninety (90) days from date of issuance of
the policy.
SEC. 78. Employees of the Republic of the Philippines, including its political
subdivisions and instrumentalities, and government-owned or -controlled
corporations, may pay their insurance premiums and loan obligations through salary
deduction: Provided, That the treasurer, cashier, paymaster or official of the entity
employing the government employee is authorized, notwithstanding the provisions of
any existing law, rules and regulations to the contrary, to make deductions from the
salary, wage or income of the latter pursuant to the agreement between the insurer
and the government employee and to remit such deductions to the insurer
concerned, and collect such reasonable fee for its services.
PREMIUM: the agreed price for assuming and carrying the risk: TO MEET ANTICIPATED
LOSSES
ASSESSMENT: a sum specifically levied by mutual insurance companies or associations,
upon a fixed and definite plan, to pay losses and expenses: TO MEET ACTUAL LOSSES

The payment of premium is ordinarily NOT a debt or obligation

FIRE, CASUALTY OR MARINE INSURANCE: the premium payable becomes a DEBT as
soon as the risk attaches

- Non-payment of the balance of the premium due does not produce the cancellation of

the contract of insurance in the sense that it can no longer be enforced

- PHOENIX CASE: by express agreement of the parties, no viniculum juris or bond of
law was to be established until full payment was effected prior to the occurrence of the
risk insured against
- MAKATI TUSCANY CASE: by agreeing to make premiums payable in installments
LIFE INSURANCE: the premium becomes a DEBT only when in the case of the 1st
premium, the contract has become binding, and in the case of the subsequent premiums,
when the insurer has continued the insurance after maturity
- Insofar as the contract is executory, the ordinary life insurance is purely unilateral. The
insurer, therefore, CANNOT COMPEL the insured to pay the premium

EFFECT OF NONPAYMENT OF THE PREMIUM

As a general principle, the time specified for the payment of premiums is of the essence of
the contract
Nonpayment of the 1st premium prevents the contract from becoming binding
notwithstanding the acceptance of the application nor the issuance of the policy. But
nonpayment of the balance due does not produce the cancellation of the contract
Nonpayment of subsequent premiums does not affect the validity of the contract unless
by express stipulation, it is provided that the policy shall in that even be suspended or
shall lapse
In LIFE INSURANCE, the policyholder is entitled to a GRACE PERIOD of either 30
DAYS or 1 MONTH
In INDUSTRIAL LIFE INSURANCE, the grace period is 4 WEEKS and where premiums
are payable monthly, either 30 DAYS or 1 MONTH
VALID EXCUSES FROM NON-PAYMENT OF PREMIUMS
1. Where the insurer has become insolvent and has suspended business, or has refused
without justification a valid tender of premiums
2. Where the failure to pay was due to the wrongful conduct of the insurer
3. Where the insurer has in any wise waived his right to demand payment
- Fortuitous events will NOT prevent the forfeiture of policy if the premium remains unpaid
When policy binding notwithstanding nonpayment of premium
1. Life or an industrial policy whenever the grace period provision applies
2. Under broker and agency agreements, a 90-DAY extension is given
3. When there is an acknowledgment in a policy of receipt of premium
4. When there is an agreement to pay the premium in installments and partial payment has
been mage at the time of the loss

5. When there is an agreement to grant the insured CREDIT EXTENSION for the payment of
the premium and loss occurs BEFORE the expiration of the credit term
6. When estoppel bars the insurer from invoking Sec. 77

SEC. 79. An acknowledgment in a policy or contract of insurance or the receipt of

premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium is
actually paid.

The reason for the rule is founded on the fact that when the policy contains such written

acknowledgment, it is PRESUMED that the insurer has waived the condition of

prepayment, the acknowledgment being declared by law to be CONCLUSIVE EVIDENCE
of premium payment
The conclusive presumption extends only to the question of the binding effect of the
policy. As far as the payment of the premium itself is concerned, the acknowledgment is
only a PRIMA FACIE EVIDENCE of the fact of such payment
The insurer may still dispute its acknowledgment but only for the purpose of recovering
the premium due an unpaid
According to the Supreme Court, Sec. 79 should be interpreted as an exception to Sec.
77.
Acceptance of the premium within the stipulated period for payment thereof, including the
agreed period of grace, merely assures continued effectivity of the insurance policy in
accordance with its terms.

SEC. 80. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to
any of the perils insured against;
(b) Where the insurance is made for a definite period of time and the insured
surrenders his policy, to such portion of the premium as corresponds with the
unexpired time, at a pro rata rate, unless a short period rate has been agreed upon
and appears on the face of the policy, after deducting from the whole premium any
claim for loss or damage under the policy which has previously accrued: Provided,
That no holder of a life insurance policy may avail himself of the privileges of this
paragraph without sufficient cause as otherwise provided by law.
SEC. 81. If a peril insured against has existed, and the insurer has been liable for
any period, however short, the insured is not entitled to return of premiums, so far as
that particular risk is concerned.

SEC. 82. A person insured is entitled to a return of the premium when the contract is
voidable, and subsequently annulled under the provisions of the Civil Code; or on
account of the fraud or misrepresentation of the insurer, or of his agent, or on
account of facts, or the existence of which the insured was ignorant of without his
fault; or when by any default of the insured other than actual fraud, the insurer never
incurred any liability under the policy.
A person insured is not entitled to a return of premium if the policy is annulled,
rescinded or if a claim is denied by reason of fraud.
SEC. 83. In case of an over insurance by several insurers other than life, the insured
is entitled to a ratable return of the premium, proportioned to the amount by which
the aggregate sum insured in all the policies exceeds the insurable value of the thing
at risk.
When insured entitled to recover premiums:
1. When no part of the things insured has been exposed to any of the perils insured against
- It must be returned as no risk whatsoever has ever attached
2. When the insurance is for a definite period and the insured surrenders his policy before
the termination thereof
- This does NOT apply (1) where the insurance is not for a definite period, or (2) when a
short period rate has been agreed upon or (3) where the policy is a LIFE insurance policy
- A life insurance policy is NOT A DIVISIBLE CONTRACT, each installment is in fact part
consideration of the entire insurance for life
- However, the insured will be entitled to receive the CASH SURRENDER VALUE of his
policy after 3 full annual premiums shall have been paid
3. When the contract is voidable and subsequently annulled because of the fraud or
misrepresentations of the insurer
4. When the contract is voidable because of the existence of facts of which the insured was
IGNORANT WITHOUT HIS FAULT
5. When the insurer never incurred any liability under the policy because of the default of the
insured other than actual fraud
6. When there is over-insurance
- In case of over-insurance by double insurance, the insurer is not liable for the total
amount of insurance taken, his liability being limited to the amount of the insurable
interest on the property insured
7. When rescission is granted due to the insurers breach of contract
- The Code speaks of the return or refund of premium payments. Fees like documentary
stamp tax and other taxes are not covered

SEC. 84. An insurer may contract and accept payments, in addition to regular
premium, for the purpose of paying future premiums on the policy or to increase the
benefits thereof.

The insured is duty bound to make prompt payment of only the insurance premiums due
under the policy

SEC. 85. An agreement not to transfer the claim of the insured against the insurer
after the loss has happened, is void if made before the loss except as otherwise
provided in the case of life insurance.

CLAIM: a demand for the satisfaction of a loss suffered within the purview of an insureds
policy made by the party insured, the insurer with right of subrogation, or a non-party but
with a right against the insured

- BEFORE a loss has occurred, an insurance policy, except LIFE insurance policy, is NOT
-

assignable without the consent of the insurer on the theory that the policy is a personal
contract between the insured and insurer
AFTER the loss has occurred, the insured has an absolute right to transfer his claim
against the insurer. A stipulation attempting to prohibit such transfer of policy is VOID
against public policy for it hinders free transmission of property
- It is not the personal contract which is being assigned but a money claim

SEC. 86. Unless otherwise provided by the policy, an insurer is liable for a loss of
which a peril insured against was the proximate cause, although a peril not
contemplated by the contract may have been a remote cause of the loss; but he is
not liable for a loss of which the peril insured against was only a remote cause.

LOSS: the injury, damage, or liability sustained by the insured in consequence of the
happening of one or more of the perils

The insurer assumes liability ONLY for a loss proximately caused by the perils insured
against although a peril not insured against may have been a remote cause of the loss

The insurer has the burden of proof to show that he is not liable
PROXIMATE CAUSE: that cause which in a natural & continuous sequence, unbroken by
any new independent cause produces an event and without which would not have occurred

Proximate cause has a different meaning in insurance case than in tort cases. In
insurance law, the question is THE NATURE OF THE INJURY and how it happened. If
the nearest efficient cause of the loss is one of the perils insured against, the courts look
no further; if it is not a peril insured against, recovery may nevertheless be had if the
dominant cause is a risk or peril insured against

 FIRE insurance provides indemnification for losses caused by a HOSTILE fire, but NOT to
damage or loss due to a friendly fire

FRIENDLY FIRE: so long as a fire burns in a place where it was intended to burn
- Damage caused by such fire due to their negligent management is NOT considered to be
within the terms of the policy

HOSTILE FIRE: when it occurs outside of the usual confines or begins as a friendly fire
and becomes hostile by escaping from the place where it ought to be to some place where
it ought not to be

SEC. 87. An insurer is liable where the thing insured is rescued from a peril insured
against that would otherwise have caused a loss, if, in the course of such rescue, the
thing is exposed to a peril not insured against, which permanently deprives the
insured of its possession, in whole or in part; or where a loss is caused by efforts to
rescue the thing insured from a peril insured against.
EXTENSION of the principle of proximate cause
1. Where the loss took place while being rescued from the peril insured against
2. Where the loss is caused by the efforts to rescue the thing insured from a peril insured
against
But the insured is bound to exercise a reasonable degree of care in removing the goods

SEC. 88. Where a peril is especially excepted in a contract of insurance, a loss,

which would not have occurred but for such peril, is thereby excepted although the
immediate cause of the loss was a peril which was not excepted.

The insurer is NOT liable if the proximate cause of the loss is a peril excepted from the
policy although the immediate cause is a peril not excepted

The insurer has the burden of proving that the loss is caused by the risk excepted and for
want of such proof, the insurer is liable

SEC. 89. An insurer is not liable for a loss caused by the willful act or through the
connivance of the insured; but he is not exonerated by the negligence of the insured,
or of the insurance agents or others.

SEC. 90. In case of loss upon an insurance against fire, an insurer is exonerated, if
written notice thereof be not given to him by an insured, or some person entitled to
the benefit of the insurance, without unnecessary delay. For other non-life insurance,
the Commissioner may specify the period for the submission of the notice of loss.
SEC. 91. When a preliminary proof of loss is required by a policy, the insured is not
bound to give such proof as would be necessary in a court of justice; but it is
sufficient for him to give the best evidence which he has in his power at the time.

The terms of the contract constitute the measure of the insurers liability, and
noncompliance therewith by the insured bars his right of recovery

Sections 90-91 establish conditions concerning matters AFTER THE LOSS that must be
fulfilled before the insured becomes entitled to the benefit of a fire insurance policy

Sec. 90: Written Notice of Loss given to the insurer

Sec. 91: When required by the policy, a preliminary proof of loss must likewise be given
They are in the nature of CONDITIONS SUBSEQUENT the breach of which affects a
right that has already accrued

It has been held that FORMAL NOTICE OF LOSS is NOT necessary if the insurer already
has actual notice but there is authority to the contrary (US jurisprudence)

In absence of any stipulation in the policy, notice of proof may be given orally or in writing
TIME for giving notice of loss
Time will be considered as given immediately if it has been given as soon as circumstances
permitted the insured, in the exercise of reasonable diligence, to communicate
The period may be stipulated in the contract and such provision is valid provided the time
so fixed is NOT UNREASONABLY SHORT
The insurer has the duty to show it has been prejudiced because of the delay in giving
notice
PURPOSE of proof of loss
1. To give the insurer information by which he may determine the extent of his liability
2. To afford him means of detecting any fraud that may have been practiced upon him
3. To operate as a check upon extravagant claims

The insurer is not liable for a loss caused by the intentional act of the insured or through his
connivance

Loss caused by the ORDINARY NEGLIGENCE of the insured or his agents constitute no

defense on the part of the insurer. The doctrine of contributory negligence does NOT in any
way apply to rights under a contract of insurance
Loss caused by the GROSS NEGLIGENCE of the insured, the consequence of such act
must have been palpably obvious to him at the time, will relieve the insurer from liability

SEC. 92. All defects in a notice of loss, or in preliminary proof thereof, which the
insured might remedy, and which the insurer omits to specify to him, without
unnecessary delay, as grounds of objection, are waived.

The insurer must be satisfied when the insured has done all in his power to furnish the
information stipulated in the policy

SEC. 93. Delay in the presentation to an insurer of notice or proof of loss is waived if
caused by any act of him, or if he omits to take objection promptly and specifically
upon that ground.

By provisions of Sec. 91, waiver of delay in the presentation of notice or proof of loss may
be made (1) by an act of the insurer and (2) by failure to take objection promptly and
specifically upon that ground

SEC. 94. If the policy requires, by way of preliminary proof of loss, the certificate or
testimony of a person other than the insured, it is sufficient for the insured to use
reasonable diligence to procure it, and in case of the refusal of such person to give
it, then to furnish reasonable evidence to the insurer that such refusal was not
induced by any just grounds of disbelief in the facts necessary to be certified or
testified.

The insured is only required to exercise due diligence in procuring it.

Such requirement must be liberally construed in favor of the insured
In the event of refusal of such person to give the certificate or testimony, the insured must
furnish REASONABLE EVIDENCE to the insurer that the persons refusal was not induced
by any just grounds

SEC. 95. A double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest.
REQUISITES of Double Insurance
1. The person insured is the same
2. Two or more insurers insuring separately
3. There is identity of subject matter
4. There is identity of interest insured
5. There is identity of risk or peril insured against
Double Insurance

Over-Insurance

There may be no over-insurance when the sum

of the total amount of the policies does not
exceed the insurable interest of the insured

The amount of the insurance is beyond the value

of the insureds insurable interest

Always several insurers

There may be only one insurer involved

A policy which contains no stipulation against double insurance is NOT invalidated by

procuring of such insurance

An OTHER INSURANCE Clause is intended to prevent an increase in the moral hazard

SEC. 96. Where the insured in a policy other than life is over insured by double
insurance:
(a) The insured, unless the policy otherwise provides, may claim payment from the
insurers in such order as he may select, up to the amount for which the insurers are
severally liable under their respective contracts;
(b) Where the policy under which the insured claims is a valued policy, any sum
received by him under any other policy shall be deducted from the value of the
policy without regard to the actual value of the subject matter insured;
(c) Where the policy under which the insured claims is an unvalued policy, any sum
received by him under any policy shall be deducted against the full insurable value,
for any sum received by him under any policy;
(d) Where the insured receives any sum in excess of the valuation in the case of
valued policies, or of the insurable value in the case of unvalued policies, he must
hold such sum in trust for the insurers, according to their right of contribution among
themselves;
(e) Each insurer is bound, as between himself and the other insurers, to contribute
ratably to the loss in proportion to the amount for which he is liable under his
contract.
RULES FOR PAYMENT OF CLAIMS WHEN THERE IS OVER-INSURANCE BY DOUBLE
INSURANCE
Principle of Contribution: requires each insurer to contribute ratably to the loss or
damage considering that the several insurances cover the same subject matter and interest
against the same peril
CONTRIBUTION CLAUSE: stipulates that the insurance company shall not be liable to pay
or contribute more than its ratable proportion of the loss or damage

- Where insured claims under a VALUED POLICY (Paragraph B)

- Where insured claims under an UNVALUED POLCY (Paragraph C)
- Liability of the insurer to contribute ratably to the loss (Paragraph E)
- (Amount of Policy / Total Insurance Taken) x Loss = LIABILITY OF INSURER

SEC. 97. A contract of reinsurance is one by which an insurer procures a third

person to insure him against loss or liability by reason of such original insurance.

It is a contract whereby the reinsurer, agrees to indemnify another, the reinsured, either in
whole or in part, against loss or liability which the latter may sustain or incur under a
separate and original contract of insurance with a 3rd party
Also referred to as TREATIES
RETROCESSION: the reinsurance of a reinsurance
Reinsurance

Double Insurance

The insurer becomes the insured, insofar as the

reinsurer is concerned

The insurer remains the insurer of the original

insured

The subject is the original insurers risk

The subject of insurance is property

An insurance of a different interest

An insurance of the same interest

The original insured has no interest in the

contract of reinsurance

The insured is the party in interest in all the

contracts

The consent of the original insured is not

necessart

The insured has to give his consent

RETENTION: a limit on the maximum claim an insurance company it wishes to pay out of its
own resources, in accordance with its financial strength

SEC. 98. Where an insurer obtains reinsurance, except under automatic reinsurance
treaties, he must communicate all the representations of the original insured, and
also all the knowledge and information he possesses, whether previously or
subsequently acquired, which are material to the risk.

Duty of the reinsured to disclose facts: the duty is one of the strictest good faith; thus a

policy may be avoided where the reinsured conceals the fact where he has knowledge
thereof
REINSURANCE TREATY: an agreement between 2 insurance companies whereby one
agrees to cede and the other to accept reinsurance business pursuant to provisions
specified in the treaty

SEC. 99. A reinsurance is presumed to be a contract of indemnity against liability,

and not merely against damage.

The reinsurer agrees to indemnify the insurer, not against actual payment made but against
liabilities incurred

SEC. 100. The original insured has no interest in a contract of reinsurance.

SEC. 181. Life insurance is insurance on human lives and insurance appertaining
thereto or connected therewith.
Every contract or undertaking for the payment of annuities including contracts for the
payment of lump sums under a retirement program where a life insurance company
manages or acts as a trustee for such retirement program shall be considered a life
insurance contract for purposes of this Code.
SEC. 182. An insurance upon life may be made payable on the death of the person,
or on his surviving a specified period, or otherwise contingently on the continuance
or cessation of life.
Every contract or pledge for the payment of endowments or annuities shall be
considered a life insurance contract for purposes of this Code.
In the absence of a judicial guardian, the father, or in the latters absence or
incapacity, the mother, of any minor, who is an insured or a beneficiary under a
contract of life, health, or accident insurance, may exercise, in behalf of said minor,
any right under the policy, without necessity of court authority or the giving of a bond,
where the interest of the minor in the particular act involved does not exceed Five
hundred thousand pesos (P500,000.00) or in such reasonable amount as may be
determined by the Commissioner. Such right may include, but shall not be limited to,
obtaining a policy loan, surrendering the policy, receiving the proceeds of the Policy,
and giving the minors consent to any transaction on the policy.
In the absence or in case of the incapacity of the father or mother, the grandparent,
the eldest brother or sister at least eighteen (18) years of age, or any relative who
has actual custody of the minor insured or beneficiary, shall act as a guardian
without need of a court order or judicial appointment as such guardian, as long as
such person is not otherwise disqualified or incapacitated. Payment made by the
insurer pursuant to this section shall relieve such insurer of any liability under the
contract.

LIFE INSURANCE: insurance payable on the death of a person, or on his surviving a

specified period

A policy of life insurance is treated substantially as a valued policy

Life insurance is primarily though of as an investment by the insured
Not being a contract of indemnity, the insurer is NOT ENTITLED to subrogation (to be
reimbursed by a wrongdoer who caused the death of the person insured)

KINDS of Life Insurance Policies

1. ORDINARY LIFE POLICY: insured is required to pay a certain fixed premium annually
2. LIMITED PAYMENT LIFE POLICY: the premiums are payable only during a limited period
of years, usually 10, 15 or 20
3. ENDOWMENT POLICY: the terms of which the insurer binds himself to pay a fixed sum
to the insured if he survives for a specified period or if he dies within such period, to some
other person indicated
4. TERM INSURANCE POLICY: provides coverage only if the insured dies during a limited
period; it provides life insurance alone and has NO investment value

SEC. 183. The insurer in a life insurance contract shall be liable in case of suicide
only when it is committed after the policy has been in force for a period of two (2)
years from the date of its issue or of its last reinstatement, unless the policy provides
a shorter period: Provided, however, That suicide committed in the state of insanity
shall be compensable regardless of the date of commission.

In a life insurance contract, the insurer is liable in case of suicide in the following:

CONTRACT OF LIFE ANNUITY: the upside-down application of the life insurance principle
Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or
income during the life of one or more determinate persons in consideration of a capital
consisting of money or other property, whose ownership is transferred to him at once with the
burden of the income.
Art. 2022. The annuity may be constituted upon the life of the person who gives the capital,
upon that of a third person, or upon the lives of various persons, all of whom must be living at
the time the annuity is established.
It may also be constituted in favor of the person or persons upon whose life or lives the contract
is entered into, or in favor of another or other persons.
Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already
dead at the time the contract was entered into, or who was at that time suffering from an illness
which caused his death within twenty days following said date.
Art. 2024. The lack of payment of the income due does not authorize the recipient of the life
annuity to demand the reimbursement of the capital or to retake possession of the property
alienated, unless there is a stipulation to the contrary; he shall have only a right judicially to
claim the payment of the income in arrears and to require a security for the future income,
unless there is a stipulation to the contrary.
Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be
paid in proportion to the days during which he lived; if the income should be paid by installments
in advance, the whole amount of the installment which began to run during his life shall be paid.
Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at
the time the annuity is established that the same shall not be subject to execution or attachment
on account of the obligations of the recipient of the annuity. If the annuity was constituted in
fraud of creditors, the latter may ask for the execution or attachment of the property.
Art. 2027. No annuity shall be claimed without first proving the existence of the person upon
whose life the annuity is constituted.

1. Committed after the policy has been in force for a period of 2 years from the date of its
issue or of its last reinstatement
2. Committed after a shorter period provided in the policy but within the 2-year period
3. Committed in the state of insanity regardless of the date of commission, unless suicide
is an EXCEPTED RISK
The policy CANNOT provide a period longer than 2 years
The insurer is NOT liable in the following cases:
1. The suicide is NOT by reason of insanity and is committed within the 2-year period
2. The suicide is by reason of insanity but it NOT among the risks assumed by the insurer
regardless of date of commission
3. The insurer can show that the policy was obtained with the intention to commit suicide
even in the absence of any suicide exclusion in the policy

SEC. 184. A policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such
person may recover upon it whatever the insured might have recovered.

ALL life insurance policies are declared by law to be assignable regardless of whether the
assignee has an insurable interest in the life of the insured or not

A provision denying the insured the right to assign without the consent of the insurer will
be VOID

The courts will not, however, permit the process of assignment to be used as a cloak to
hide an illegal intent to make contracts on human life

SEC. 185. Notice to an insurer of a transfer or bequest thereof is not necessary to

preserve the validity of a policy of insurance upon life or health, unless thereby
expressly required.

If notice to the insurer is required by the provisions of the policy, an ASSIGNMENT without
such notice shall have no effect so far as the insurer is concerned

Annuity Contracts

Ordinary Life Policies

Insures against economic problems resulting from a

long life

Resulting from an early death

The estate is fully liquidated by death

The estate is created by death

The insurer stops paying upon the death of the

insured

The insurer starts paying upon the death of the

insured

The assignment with the consent of the insurer creates, in effect, a NOVATION
SEC. 186. Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy.

EXCEPTIONAL The life of the debtor is susceptible of exact pecuniary